You Can’t Make Me Move… Or Can You?

We can’t afford our house.

Perhaps on paper we can, but even then, just barely. We bought this house just nine short months ago, with less than a 20% downpayment and it should have been obvious to us then, with a new baby on the way, that we were biting off more than we could comfortably chew.

But correcting the mistake of buying a house is not an easy one. If we were to walk away now, we would likely have to bring money to the table at closing. But not walking away means a giant chunk of our budget is non-negotiable and we are barely making ends meet, much less paying off debt.

Which is an interesting position to place yourself in when what you really want to do is stay home. This house is standing in the way of our life.

Our Own Stupidity
We made a lot of missteps buying a house when we moved here about two years ago:

1. First, we shouldn’t have bought a house here until we were sure we wanted to stay for at least three more years. I won’t go into the reasons here, but we have industry-related issues that could force a move as early as next year.
2. We ended up buying a house 30 minutes from work, church, pediatrician, and gymnastics class (the class is funded by grandparents, so don’t roll your eyes at me). We couldn’t afford any houses closer – a giant red flag about the general cost of living here. So instead we traded a too-expensive mortgage for a manageable mortgage, plus extra gas and vehicle maintenance. I’m thinking we didn’t come out ahead.
3. We were keeping up with the Joneses. We moved everything from our stuffed 2700 sq ft house in Texas and put it in a 1700 sq ft town home when we got here. We were tripping over each other, furniture, and dogs. We did not sell anything. Nope. Not one thing. We needed it all for a future house.

What Would Dave Do?
After our recent budgeting exercise had us so tight on vehicle maintenance, medical care, and groceries, I got nervous. I found a forum of Dave Ramsey believers and submitted my budget for review. You know what they said? They told me we needed to make more money.

Seems kinda crazy telling people whose combined income is well over six figures, but these folks couldn’t find too many areas to shave, considering we write four-figure student loan payments each month.

Due to the nature of our professions, we don’t have other viable employers in this area. If we want to make more money, that means we have to move or take on second jobs. We work 40 hours a week minimum, so with a long commute and small children, second jobs are hard to fit in.

Two Steps Forward and One Step Back
Let’s say a new job opportunity presented itself to my husband. And let’s say it didn’t pay relocation, but the salary offered was good enough to entice us to move. We’d lose money on the sale of the house. We’d lose money moving. But isn’t it still the right call?

I think the answer is yes.

We are not ready to sell the house today, but I thought undoing our mistake might still be the best call. And then we could be prepared to quickly move if we needed to or wanted to. And what if we sold our house now for a fair price? We’d end up renting where we started out, which was across the street from our daycare and 5 minutes from work. Time is money. And location is money, especially with rising gas prices.

With that plan in mind, my husband and I decided to list our house on Zillow.com as a “Make Me Move”. “Make me move” is a premarket listing on Zillow, which some owners use it to see if their listing price is fair and some are using it to post a house that might need a few things before being placed on the actual market. The process is simple – it only took me about 15 minutes to do a thorough listing.

Next Steps
With the house (sort of) listed, we have a few things to start tackling. We want to be prepared for moving back into a 1700 sq ft place with an extra body (after all, we’ve had a baby since leaving the townhomes).

1. We need to downsize. We have two couches, for example. And two washers and dryers. Craigslist, get ready!!!
2. We need to minimize. We have too. Much. Stuff. My daughter has a playroom filled to the brim with toys. I have clothes in three closets (to be fair, one closet is maternity clothes, which I am still in, and the others contain various sizes I hope to one day be. Again.) I think I have something like 6 cake pans, which is a lot for someone who rarely makes a cake. Yard sale and consignment shops, here we come!

Anything we net from Craiglist and the yard sale will be set aside to help us bridge the gap at closing. If we get lucky and don’t have to bring money to closing, we’ll roll this money back into our debt.

What about you – have you ever had to lose money to put yourself in a better financial position?

Me vs Dave

All I want to say is: sure am glad that I have the extra money I posted about yesterday. Details to come soon…

But it brings me back to the me vs. Dave Ramsey thoughts (and I’m not really against Dave – I have serious respect for him and his teachings). If I was following Dave’s baby steps, I’d be out some cash that I might need in order to make a more serious investment toward paying off our debt. But I’m not following his baby steps (although the 10 stones aren’t all that different) because I think my personal situation and comfort level don’t really jive with them.

But if Dave works for you – great! I am glad you have found an approach that you can dedicate yourself to. I have, too! And we can still support each other in our efforts and not pass judgement on who is doing things right or who is doing things wrong. (I’d say personal finance has no right or wrong, but I think if you are reading this blog you totally know that there is a wrong.)

While we are at it, let me confide in you that I am contemplating not doing a debt snowball of the smallest loans to the biggest because you end up paying more in interest. But I ran the numbers and attacking the highest interest rate loan first (with little snowball) only saves me a few months in repayment, so that hardly seems worth it. What is worth it: a combination. Clearing out a few of our tiny student loans, using them as the snowball, and then attacking highest interest rate to lowest. My quick estimates say that could save us over a year on our repayment. We will be running the numbers again as we approach this possibility because of the variable interest rates that our loans have.

The other consideration is keeping momentum. We have 12 loans, so I want to set us up to be able to pay off about three loans a year. We may want to hop back and forth between small balances and high interest rates in order to keep our momentum going.

Some of you are going, oh geez, I don’t want to run numbers once, much less multiple times a year. But as a rocket scientist (really), running numbers isn’t intimidating and I think it’s actually sort of fun. I know. I’m a glutton for punishment.

Seriously, though. We are in debt with over 100k in student loans after 10 years of repayment. So I think momentum is important, but so is finding the way that works quickest. And if that means I have to adjust course here or there, rather than just sticking to some solid advice because it’s easy and clean cut – that’s the way I want to go.

There are tons of people who offer really solid plans for getting out of debt, it’s not so much about who’s (solid) advice you follow. It’s about just starting. Just picking a direction and heading down it as fast as you can. And while we are at it – some folks are going to run breakneck speed down that path and some are going to crawl. That’s fine, too. Just keep moving!

What about you? Are you a Dave Ramsey believer? Or have you found your own path out of debt?

June Challenge: The Murphy Fund / Emergency Fund

Go to the ant, O sluggard, Observe her ways and be wise, Which, having no chief, Officer or ruler, Prepares her food in the summer And gathers her provision in the harvest. (Proverbs 6:6-8 NASB)

I submitted our budget to a forum of Dave Ramsey aficionados and was sickly relieved when they were all stymied. Yup, the internet confirms that I’m in debt up to my eyeballs and don’t have a lot of options (other than to get paid more)… But I’m not discouraged!

The ever-popular Dave Ramsey’s first get-out-of-debt baby step is to build a $1,000 emergency fund and then you roll into paying off your debts. After you’ve done that, you build up 3-6 months of emergency expenses. Sounds logical, and yet these steps always tripped me up.

The $1,000 was always easy. We had it in hand. No problem. But when I thought about only having $1,000 in the bank to cover us for the next 10-ish years while we paid off student loans… Well, I got too nervous. My (suddenly) miserly little hands tightened around my checkbook and I couldn’t move ahead in the process. Too be fair, Dave will often say that some people might need a little more than that, but the $1,000 amount is listed in the steps on his website and in his books and he quotes that figure a lot. I’m a rule follower and $1,000 felt like the law.

So then I read Steve Diggs’ No Debt, No Sweat! and learned of a similar set of steps, but ordered differently. The first step is the same – save up $1,000. The next is to save up about 5% of your “true” income for a “Murphy Fund” (Murphy’s Law states “anything that can go wrong, will go wrong”). Only after this buffer is built do you start paying down debt. Whew. I can do that! Our Murphy Fund will need to be about $4500-5000.

So, I’m going to challenge my husband and I to have a Murphy Fund in place by the end of June. If we should find extra money, we can’t spend it – we will put it straight toward our smallest student loan, which will be our next challenge.

This means I actually need to see how much money we have in the bank and how much of it is really spendable money – not money I need to carry forward to pay car insurance, for example. If we don’t have the cash readily available… Well, looks like we will be selling some things.

I’m happy we completed our budget (I’ll need it for this step), but getting this Murphy Fund in place will feel like momentum is rolling! Paying off those student loans and staying home with the girls will seem that much more doable 🙂 With this being my first full week back at work, it’s good to have a goal in place to keep me focused and encouraged that I can change my circumstances 🙂

Which system do you prefer? Just $1,000 saved up? Or would you need more to make you comfortable?

Money Mismanagement Confessional: The Full Story of Our Debt

The purpose of this blog is to bring some accountability to our finances, but perhaps this blog can actually help someone else avoid the mistakes we’ve made. That can only happen if I lay them out there for everyone to see. So excuse this really long post – I just want to put this out there and then move on, not make some series of posts about our mistakes. Mistakes. Plural. Yes, it’s our student loan debt that keeps me from being a stay at home mom, but that’s actually only half the story. Long ago, God provided a way out of that. But I didn’t know I even wanted it…

Growing up, we were not poor, but we were not well-off people. We never took vacations. My clothes were, at best, from Wal-Mart, and at worst, ill-fitting hand-me-downs from my larger-sized sister. We rarely spent money on having fun. When I was in high school, my dad died. My high school educated mom took on a second job to make ends meet, working all day at her full-time job and being on-call for a second job at night. Mom died when I was in college. Perhaps fearing for the provision of her children after enduring the financial hardship that came with my father’s death, she had left us her 401(k) and a few life insurance policies. The sum total would not make us rich, but for a kid in college, it was a huge windfall.

This windfall would have paid off my student loans and those of my future husband. But I had allowed myself to get into a few thousand dollars of credit card debt and my car had ceased to run properly. It would cost a lot to fix it, but it was still fixable. Those were short term needs. Once I graduated and got a job, paying of my student loans seemed like it would be easy. So in all my wisdom, I paid off the credit card debt, bought a brand new SUV, and sat on the rest of the money for awhile.

We threw ourselves a cheap wedding just over a year after my mom passed. Seriously, we did good. The only thing that could have been cheaper would have been a courthouse ceremony. We were gifted most of the expenses for our short honeymoon, so we even rocked that.

But I didn’t want to start our life together without a dresser. Seriously, who doesn’t have a dresser? And his vinyl futon had.to.go. And the entertainment center he’d fashioned himself was not working for me. So we bought a dining room table, leather couch (pre-vegan days), mahogany entertainment center and coffee table, and queen bedroom set (with a pricey Temperpedic mattress). All new.

Within four months, I got a job that moved us from Florida to Tennessee. I failed to negotiate for relocation expenses, believing they would have offered if that was an available benefit. So we paid out of pocket for professional movers to move all our nice, new, heavy furniture.

Once in Tennessee, we still had around half our windfall. We used almost all of that as a large downpayment on a house (that was probably too expensive for us). It was a huge house, so of course we needed more furniture. And the large yard required brand new lawn equipment. Whatever we held out from the downpayment got sucked into more stuff for our house.

We sold the house in 18 months in order for me to take a dream job at NASA in Houston, TX. Of course, we didn’t make any money in the sell because we hadn’t paid much principle, given the timeframe and the fact that we had an ill-advised balloon mortgage. In Houston, we rented for awhile and eventually bought a smaller, less expensive home with only a 20% downpayment. We used most of our leftover money to purchase a slightly used vehicle to replace hubby’s aging bachelor sports car. At least we wouldn’t have a car payment, but we didn’t take action to start saving for our next vehicle.

After a little over four years in our home, we were preparing to move for my husband’s career and recognized the house might not sell as quickly given the state of our floors. So we used any money we had left (and borrowed quite a bit) to redo the flooring, which was a strategic move just to sell the house quickly – not to make money – because until the house sold, we’d have two housing payments. The two housing payments would kill us.

While hubby was in the north at his new job, I ran to the grocery store to buy my daughter’s speciality milk. My debit card was declined. I sobbed. My hubby arranged to wire me some money the next day. We weren’t even tracking our balances, even though we knew these two living expenses would get us!!! We made it, but it was a stressful, nerve-wracking, depressing time. The house sold, but we didn’t make money if you included the flooring upgrades, although we accepted an offer within three weeks. Maybe the new floors were worth it.

In our new location, no one rents houses to dog owners. And few rent apartments to dog owners. So rather than looking for the cheapest place, we looked for any place that would let us keep our aging pets. We felt as if they were too old to rehome compassionately.

We ended up in an expensive but rundown townhome, so when we bought a home, even with our meager 15% downpayment, the mortgage+taxes+insurance was less than our townhome rent.

Looking back, the smartest thing to do would have been to pay off debt. Live like other newlyweds do – with mismatched furniture in a small house with vehicles that barely run. Because, had we done that, I’d be staying home now with my children.

Instead, my furniture is scratched up, coming apart, and in some cases, doesn’t even fit in my house anymore. That SUV I bought in Florida was rear wheel drive. When we bought our house here (in the very, very north), it couldn’t drive anywhere due to the icy hills. We couldn’t manage to get it parked in our driveway and got a ticket for parking on the road. We had to sell it and buy a vehicle with a payment. Our houses have gotten smaller and smaller and smaller.

We live a happy life. We are mostly healthy. We have two beautiful girls. We are incredibly blessed to have this life. I don’t want to live in the past. But here are takeaways from my story:

1. Don’t use student loans. You may think you will make some huge salary, but even if you do, when it all goes to student loans, what does that matter? With your great salary, if you can’t take a vacation or afford a house, will you still think those loans were worth it? If you graduate and decide you hate your chosen career (I hear this too often), you might end up in a low-paying job you love, but doesn’t pay enough to cover those loans. Or perhaps worse yet, you are stuck in a job that you detest, just to make ends meet.
2. Live on a budget that reflects your current salary but has room to save. You should be forecasting needs for the next 5+ years and making sure your budget supports that. Are you saving for a new vehicle if yours is older? Think your couch will give out or you’ll need a new roof on the house? Plan to have kids? You cannot plan for everything, but try to hit the high notes.
3. Don’t buy a house until you know you want to stay in the area for a while. We knew this and every. single. time we go ahead and buy a house and lose money in the process. Three times now. Shame on us.
4. If you are moving for a job, negotiate the best relocation package you can. Consider the cost of movers, closing on your home, house hunting trips, and all the set up costs you will have in your new area. Moving without a relocation package is probably a bad call, but I’m sure exceptions exist. Don’t fool yourself into thinking you are one of them – seek wise counsel before taking the leap.
5. Don’t buy new just to have it new. Other than a home, just about anything you buy new will decrease in value quickly, so if you try to sell it, you won’t make back what you paid in. A slightly used vehicle will have a substantial reduction in cost. One that is a few years old is an even better deal. Electronics, appliances, clothes all fall into this category, but especially furniture. Do not buy new furniture if you plan to move soon (every move will damage it a little and your furniture may not even fit in your new place). If you plan on having kids, know your kids will rip, tear, scratch, stain, vomit on, and pee and poop on your furniture. Might as well buy something that might be a little beat up already that doesn’t come with a hefty price tag.
6. Do not spend any windfalls until you have a very clear plan for what to do. I recommend reading up on Dave Ramsey’s 7 baby steps to financial freedom or Steve Diggs’ 10 stones.  Had we followed either set of steps, we would have had our loans paid off years ago, with a small emergency fund on the side. It would have taken us no time to save a nice downpayment for a home without student loan payments.
7. Understand that careers are not everything. You have to know that I was raised with the expectation to go to college and have a career. My mother worked (because she had to) and I had no understanding of the career woman vs. the stay-at-home mom. I assumed all women worked and had no counseling that I might want to prepare for a different life, so I never did. It wasn’t until I was about six months pregnant with our first child that it even occurred to me that I’d like to stay home – far too late for such a serious course correction. Teach your daughters to be independent and able to take care of themselves in case they have to (see the point about my high school educated mom working two jobs after her husband passed). But make sure they know there’s a very important career that they’d be wise to prepare for whether they have a “side” career or not. Tell them being a mom could possibly be the best thing the could ever aspire to be. But this isn’t just for mothers of girls. Oh no. My husband’s mother had to stay home for a time and was miserable. I think that’s why no thought was given to “what if Brian marries one day and his wife wants to stay home?” Nope, he was sent off to school and told to borrow everything he needed – to the tune of 100k for a career that starts of paying less than 20k a year. Mothers of boys: teach your sons to prepare for a wife who might want to stay home (even if she initially scoffs at the idea).

Know this: God provides. Despite all our failings with what He has blessed us, He has always seen us through. I’ve confessed my sins to Him (and you!) and I know that my loving, compassionate God has forgiven me. I kinda think that, as I learn to do better, that God will challenge me to do even better; I will grow and He will stretch me. My challenges are not over, which is probably all the more reason to continue this blog.

I say all this to say that it’s not that God hasn’t called me to be home with my children. I think He has. He has not blocked my path – I did. But can He still help me get to where I should be? Absolutely! But it may a long, winding, backroad that I have to take now. I’m not looking back.

My Thoughts on Dave Ramsey

In an earlier post, I said I’d talk one day about my thoughts on Dave Ramsey. Today is that day, if only because of a lack of other topics.

First things first, I think Dave is a smart guy. I’ve read a few of his books, I’ve perused his website, I’ve listened to his radio broadcast, and I’ve tried to employ his methods. I am not down on Dave Ramsey. If he’s helped you get out if debt, I am not surprised! Dave Ramsey’s tough love approach is what many people need to hear to hear to get themselves in gear. I know I needed to hear it!!! But…

Listening to Dave’s show years ago, I heard two themes repeated: second job and beans and rice. Dave actively encouraged men to step up and get a second job to speed the debt recovery process. He also, even if jokingly, extolled a diet of beans and rice – but what he was really saying was “drastically reduce your spending”.

I just finished reading America’s Cheapest Family Gets You Right on the Money, and they preach a more balanced approach, even going so far as to say “don’t get a second job” because it takes too much time away from family. Breath of fresh air.

Dave Ramsey originally appealed to me because he had a simple-sounding, ten-step process. As an engineer (or rocket scientist, if you prefer), I love formulas, processes, order and rules. I was looking for a plan to follow, and Dave offers that.

But as we took on Dave’s system, I kept bumping into issues. Our envelops had too much money for me to be comfortable storing them in our house. I couldn’t stand the thought of not taking vacations (even cheap ones) until we were debt-free, which I figured would take around 10 years. I couldn’t imagine living on rice and beans and Ramen noodles for 10 years, nor did I think it was healthy. Our debt snowball, per my budget, would have taken us around 2 years to start “snowballing” payment from one debt to another, meaning that we didn’t have positive feedback to look forward to frequently. For two years, we’d be sacrificing with no pat on the back. That’s hard!

With every deviation from Dave’s rigid, tough love, suck-it-up ways, I felt lazy and wrong. And little by little I gave up.

When we had just started out with Dave Ramsey’s guidance, I figured we could pay off our 20 year student loans in 10 years. (I wasn’t sure of the exact pay-off date. We were newlyweds and I had just started my career while Brian was still in school. We had no idea of our expected income in the next 10 years and we wanted children, too. So many variables!!! But I felt like 10 years was doable). Here we are 10 years later and we are on track to pay our student loans off in – you guessed it – 10 years. Sigh.

I realize now that I just needed to modify Dave’s approach a bit for our specific circumstances. While I love plans and rules, this is an area where there is no one-size-fits-all. Steve Diggs gets that and writes about it beautifully in No Debt No Sweat. I love the advice the Economides dish out as “America’s Cheapest Family”, too. I’ve put down these books thinking I can be frugal and save, but I don’t have to deprive myself of everything until I’m debt free and that I get to decide what is right for my family. Sigh of relief. We can do this!!

With hindsight being 20/20, I can tell Dave’s approach works best for a certain set of folks swimming in debt, so here is the advice I can offer. Go all out Dave Ramsey if you meet many (not necessarily all) of these descriptions:

1. You have debt that totals less than your annual salary. With creativity and frugality, you can probably knock out your debt in a few years.
2. You have no dependents in your foreseeable future (i.e. taking a second job only impacts you – no kids, no spouse).
3. You have several small debts where you can use the debt snowball and pay them off almost immediately, providing additional motivation.
4. You are so irresponsible with money that you’ve come to know that you require a tough love approach – otherwise you’ll just keep making a mess of things.
5. Credit card debt is one of your major problems.
6. You already own a home and a newer vehicle and won’t require major expenses for either category in the foreseeable future. Reason: Dave doesn’t advocate worrying about your credit score, but this can cost you a lot of money in interest rates if you truly must finance something in these categories. He takes such a firm cash-only approach, that you can feel defeated if you need to purchase a vehicle. Reasons for buying a house, even before paying off debt, can also exist, such as moving for a job and/or lack of affordable rentals.
7. You have assets you can tap into to get a significant start in your journey. (You can hold a garage sell and make a killing on all the “stuff” you bought but don’t need; you can sell a car or boat; you can sell a vacation home or other real estate; you have investments you can cash out).

If you don’t meet most of these, my advice is to listen to Dave, but just be gentle with yourself – do the best you can.

Did you take any drastic steps to pay off a debt? What did you do and how long did it take to pay off the debt?